Senate Bill Might Evict Affordable Housing Goals

Charlene Crowell |
3/20/2014, 2:21 p.m.

Charlene Crowell

In an unconventional move, legislation designed to reshape the nation’s $10 trillion housing finance market was released March 16. Since then, reactions to proposed broad changes have ranged from strong support to "wait and see" to outright opposition.

According to the bill’s authors, Sens. Tim Johnson, chair of Senate Banking Committee, and Mike Crapo, the committee’s ranking member, the rare weekend release was the result of months of effort to accommodate varied input to secure bipartisan support and move the proposal forward – in time for a full Senate vote by November.

In a news release, Chairman Johnson said, “This proposal includes an explicit guarantee in order to add stability to the economy, keep costs reasonable for borrowers and renters, and ensure fair access to the secondary market for all lenders.”

“There is broad support to fix our flawed housing system, and today’s actions are a strong step toward ending the status quo”, added Ranking Member Crapo.

But just how much support there is for the 442-page legislation really depends on who is speaking.

“Housing finance reform was too important to rush a committee deal on, and in my view, it’s also too important to rush a markup on”, said Sen. Elizabeth Warren, also a member of the Senate Banking Committee. “We should have a full, open discussion before we decide to set out on a new path, and that means members of the Banking Committee should have real time to dig in and consult with people before a markup.”

While the Senate Banking Committee deliberates the legislation’s proposals, organizations that researched the housing crisis and others representing consumers affected by it are speaking up.

In a recent radio interview, Mike Calhoun, President of the Center for Responsible Lending (CRL) said, “It's a radical surgery proposal; it's somewhere between a complete tear-down and an extreme gut rehab. The question is does that get us to a better place?”

“And middle and moderate income families might be less served with this approach. The new model could make it harder and more expensive for a lot of people to get mortgages”, added Calhoun.

CRL research shows that the average family would need 14 years to save enough money for a five percent down payment. For Black families, the number of required years would double to 28 for the same five percent and 17 years of saving for the average Latino family.

Further, home down payment savings do not take into account closing costs, which typically are an added three percent of the cost of the mortgage; or mortgage insurance that is required for homes purchased with less than a 20 percent down payment. In CRL’s view, there is no wisdom in requiring these homeownership delays when so many families have successfully paid mortgages made with low down payments such as FHA loans.

Despite these findings, the Johnson-Crapo legislation would still require mandatory down payments: 3.5 percent for first-time borrowers and 5.0 percent for all others. The legislation would also eliminate affordable housing goals for Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs). The bill would phase out both GSEs and replace them with a new agency. Instead of affordable housing goals, market-based incentives would be developed to promote business in underserved areas for both homeownership and rental properties.